Annuity purchase & fund falls? 23 February at 1:07PM in Pensions, annuities & retirement planning 4 replies 458 views

FrugalFredi

When buying an annuity, I'm wondering what happens if a market crash type event comes along just as funds are being sold/transferred to the annuity provider. Are there mechanisms to pause/halt fund sales if they fall below a preset value? Or is it just hard luck?

dunstonh

When buying an annuity, I'm wondering what happens if a market crash type event comes along just as funds are being sold/transferred to the annuity provider.

Normally best to fund switch into cash in the lead up to buying the annuity to avoid such a thing.

FrugalFredi

That would be a good plan, and seems obvious now. Thank you.

The fund is with Zurich (Managed AP), it's an old Allied Dunbar plan from 1989. I've now spoken to Zurich about cash options and all they offer are alternative funds or transfers to another provider. If my understanding is correct, the funds available for switching into have a 5% bid/offer price spread and would therefore seem to bake-in an immediate loss of 5% once switched. Again, that's if I've understood correctly.

Zurich will allow partial transfers, so if this is possible, would transferring 20% chunks into a SIPP, over a period of several weeks, be a sensible way to move it into cash? I have a first meet with an IFA coming up in late March so I probably won't do anything yet, but I'd like to get some understanding.

dunstonh

The fund is with Zurich (Managed AP), it's an old Allied Dunbar plan from 1989. I've now spoken to Zurich about cash options and all they offer are alternative funds or transfers to another provider.
On an old product like that, you will be looking for the cash fund or deposit fund.

 If my understanding is correct, the funds available for switching into have a 5% bid/offer price spread and would therefore seem to bake-in an immediate loss of 5% once switched. Again, that's if I've understood correctly.

You shouldn't do but you should check.    Spreads were more about money being added to the plan. i.e. in the contribution stage rather than fund switching.

Zurich will allow partial transfers, so if this is possible, would transferring 20% chunks into a SIPP, over a period of several weeks, be a sensible way to move it into cash?

Annuity provider may lower their annuity rate as each chunk will be an annuity in itself. i.e. 5 annuities if you do 20%.

FrugalFredi

I called Zurich to check the transfer situation, and you are correct, the bid/offer spread does not apply to fund switches. 

Many thanks for the help Dunstonh.